Put a procedure in place that insures that your company will not be at fault;
you will save time and money in the long run.
Bernard L. Sweeney and Andrew F. Reish
In recent years, it has become the custom to try and patent infringement actions before juries rather than judges. In all patent infringement trials, defendants must be concerned whether, if their acts are found to infringe another's patent, that infringement will be found to have been "willful". Although this danger exists regardless of whether the case is tried before a judge or a jury, experience shows that juries are far more likely to find infringement to have been "willful" than are judges.
The implications of a determination of willful infringement are staggering. First, juries must determine the amount of damages to compensate the patent owner. Patent damage awards in recent years have increased tremendously; awards in the millions, and even hundreds of millions, of dollars are not uncommon. Second, the finding of willful infringement brings the remedial provisions of two sections of the patent laws directly into consideration. Under 35 U.S.C. ¤ 284 the judge is permitted to increase the amount of damages that has been awarded by the jury up to three times. Section 285 provides that, in "exceptional" cases, the court may also award reasonable attorneys' fees to the prevailing party. It has been held repeatedly that a finding of "willful infringement" is sufficient to trigger the application of both these provisions. Thus, a finding of willful infringement can result in a final award to the patent owner that dwarfs the original damage award. Such a result can be devastating to a company. This article will explain what conduct can be construed as willful infringement and suggest how such a finding can be avoided.
What is willful?
For many years, the courts have been inconsistent in their approach to this question. As a result, it has been difficult for parties to proceed with their business while avoiding the potential of being guilty of willful infringement. It has also been hard to evaluate whether their conduct was willful infringement when an infringement charge was brought.
Clearly, given the large sums of money that can be at stake, this matter was one that cried out for standards by which a party's conduct could be evaluated objectively. With the creation of the United States Court of Appeals for the Federal Circuit in 1982, which centralized the appeals of infringement issues, a trend has occurred toward establishment standards in patent matters.
Regarding the issue of willful infringement, two recent decisions of that court have done much to establish the standards by which a party's conduct can be evaluated: Read Corp. v. Potec, Inc., 970 F.2d 816 (Fed. Cir. 1992) and Westvaco Corp. v. International Paper Co., 991 F.2d 735 (Fed. Cir. 1993). These two decisions have established a three-step process to determine if a party's infringement of a patent has been willful:
Did the party actually know about the patent with which it is charged with infringement?
If the party had such knowledge, did the party have a good faith belief that it would not be held liable for infringement of the patent?
Was the belief reasonable under the totality of the circumstances?
Let us look at these elements separately. The first, actual knowledge, is the most obvious. Willful infringement, implies intentional conduct on the part of the infringer. A party cannot be found to have willfully infringed a patent about which it had no knowledge. On the other hand, the studied avoidance of acquiring knowledge about the existence of a patent will not support a later claim of lack of knowledge. For example, deliberately not looking at the nameplate on a competitor's product (nameplates are likely to carry the number of any patent protecting the product) while examining the product to determine how best to compete with it will not protect someone. Knowledge of the patent will be imputed to a party if it is determined that a reasonable person who respects the patent rights of others would have learned of the existence of the patent. Otherwise, actual knowledge of the patent is required.
The second element is a subjective one. Did the infringement party have a good-faith belief that it would not be found to be liable for infringement of the patent? Such a belief may be based upon anything that would be a complete defense to a charge of patent infringement. For example, in addition to the more obvious issues regarding possible invalidity and non-infringement of the patent, a party may believe that it is licensed under the patent or that the patent owner cannot enforce the patent because of equitable estoppel. Equitable estoppel means that when a patent owner, through its conduct, leads another to believe that a patent will not be enforced and the other party changes its position in reliance on that conduct, the patent owner will not later be allowed to enforce that patent against the other party.
It is in this subjective area that the opinion of competent counsel is addressed first. Clearly, if a party relies on a well-reasoned written opinion of counsel in forming a good-faith belief, it is not likely to be liable for willful infringement of the patent. However, this element can probably be satisfied by something considerably less formal than a written opinion. A conclusory oral opinion of counsel or the opinion of an engineer or scientist may well be enough for this element. It is the subjective good-faith reliance by the party upon the information available that is critical. So long as the party truly believes that it is clear of liability, it is our opinion that the party will pass this element.
A factor that is not included in the test of willfulness, but which is often important to the determination of willful infringement, is when the opinion was given. Obviously, a party cannot rely upon any opinion until it has been received. Thus, an opinion rendered months or years after the party learns of the existence of a patent is worth far less than is an opinion received shortly after a party learns about a patent. In fact, opinions that are not prepared until after litigation has commenced (but where the party has known about a patent for some time) have been held to be of little or no value relative to the issue of willful infringement.
Was it reasonable?
The third element is the objective element. That is, given the totality of the circumstances, was the party's reliance on good-faith belief of non-liability reasonable? Would a reasonable person in those circumstances have sought out other, perhaps more complete, advice before deciding how to avoid infringement of the patent? It is here that the merely conclusory oral opinion of counsel or the lay opinion of an engineer or scientist is unlikely to be found acceptable.
In evaluating a party's conduct, it is proper to look at the experience of the individual who proffers the opinion upon which the party relies. It is also necessary to see what information that person examined in reaching the conclusion that the party is not likely to be liable. However, the most important factor in this element is the factual basis for the opinion. If that basis is well-grounded according to patent law and the facts in the particular case, it is likely that the reliance upon the opinion will be accepted as being sufficient regardless of who offered that opinion.
Often the reasonableness of the party's reliance on the opinion is evaluated by comparing the basis for the opinion to the issues raised and litigated in the action. If it is the same or very similar to the basis for the opinion, and if that basis was sufficient for the case to have been decided by the jury, it is likely that the court will hold that the party's reliance on the opinion was proper and that it precludes a finding of willful infringement.
How does it happen?
What are the sorts of activity that may be found to be willful infringement? As implied above, willful infringement includes many kinds of conduct besides the deliberate copying of a competitor's patent or product. Far more frequently, willful infringement takes place when the products or processes in question have been developed independently by the infringing party, often at great effort and expense. Here, it is what the party does after they first learn about the patent that decides whether the subsequent infringement was willful. The issue is, did the party take those steps after learning of the existence of a patent that an ordinarily prudent person would take to avoid liability for patent infringement?
Obviously, the facts vary from case to case; however, the nature of the inquiry remains fairly consistent. Some of the questions that will be asked include:
- Did the party immediately seek an opinion as to whether that patent was infringed by its product or that patent was invalid, or did the party wait for some time to do so?
- Was the opinion sought from an intellectual property attorney or merely a technically trained person, an in-house attorney, or outside counsel?
- Was the prosecution history and the prior art (mostly previously published related work) known to the party reviewed, or was the review limited to the patent and the product or process?
- Was the opinion merely conclusory or did it contain detailed reasons, supported by reference to the facts, to justify the conclusions reached?
- Was the opinion offered orally or was it in writing?
- If the opinion indicated that a problem existed, were any steps taken to change the product or process?
- If infringement could not be avoided, were any steps taken to secure a license under the patent?
Answers to these questions and others like them determine, in most cases, whether the resulting infringement was willful or not. Generally, the greater the care taken by the party in response to learning about a patent, the less likely they will be found to have acted willfully.
As an illustration of objective evidence of conduct that was considered as not constituting willful infringement, we look to Westvaco. In evaluating the written legal opinions relied upon by the defendant, the court considered whether an alleged patent infringer was justified in relying on its patent counsel's advice; in other words, whether the counsel's opinion was competent. The opinions were reviewed to determine whether they were an adequate review of all necessary facts or whether they were merely conclusory on their face. To the court, counsel's opinion must be thorough enough to instill a belief in the asserted infringer that a court might reasonably hold that the patent is invalid, not infringed, or unenforceable. In considering the reasonableness of the accused infringer's reliance on an opinion of counsel, the opinion should be reviewed for its overall tone, its discussion of case law, and its analysis of the particular facts of the case.
In evaluating the outside patent counsel's opinions, the court determined that the opinions were clearly competent and that the asserted infringer was justified in relying on them. Each opinion began with a statement that it was based on a review of the file history of the patent, the prior at of record, and additional prior art, thus showing adequate foundation. The opinions were not conclusory; the validity, non-infringement, and unenforceability issues were analyzed in detail, including discussions of the prior art, the accused device, and the claim language of the asserted patent. The claims, reflecting the scope of the monopoly of the patent, were analyzed separately rather than as a group.
Although the opinion was not unequivocal regarding either the asserted infringer not being held liable for infringement or the patent being invalid over the prior art, the advice provided a genuine and not a self-serving opinion of there being a high probability of non-infringement and invalidity. Apart from the competency of the legal opinions, the court recognized and approved of the steps taken by the asserted infringer to make specific changes to its accused device to avoid infringement of the patent.
What steps should be taken to best avoid any possibility of being found to have infringed a patent willfully? The primary advice is to establish a set procedure that your company uses any time a patent that relates to another company's product or process comes to your attention. This procedure should be in writing and communicated to every person who is likely to come into contact with information about the patents of others. The existence of such a written procedure is important for many reasons. First, it increases the likelihood that proper measures will be taken to avoid charges of willful infringement and, therefore, greatly lowers the likelihood that the company will be found guilty of infringement. Moreover, it makes defending an allegation of willful infringement relatively easy. A written procedure enables the party to show that the company respects the patent rights of others and that correct procedure was followed.
It is almost impossible to judge in advance which patents may be relevant to a company's products or processes. It is also unlikely that information about the patents will fall directly into the hands of persons qualified to decide whether the patents are important. Because of this, the procedure should require that the initial information about the patents be given to a specific person who can then follow through with the evaluation. Usually, this person should be a member of the company's patent or legal department.
The procedure you set up should define the steps that are to be taken to acquire a competent opinion concerning the possibility of patent infringement. From the test stated above, it is the reasonableness of the party's belief in and reliance upon the opinion received that is the most difficult element to meet.
The decisions of the United States Court of Appeals for the Federal Circuit have said repeatedly that the opinions should be given by counsel having the legal and technical expertise to evaluate the facts properly. Clearly, counsel specializing in United states intellectual property law are the persons best able to offer such opinions.
Although such opinions may be and often are provided adequately by in-house counsel, it should be noted that many decisions have derogated opinions by in-house counsel on the basis that they are less likely to proffer truly objective opinions to their employer than outside counsel. Thus, particularly if it is determined that there is a serious problem, it may be appropriate to retain outside counsel even if in-house counsel is perfectly capable of accomplishing the task.
Also, the decisions of the Federal Circuit have regularly held that competent opinions should be based upon not only the patent, but also upon the patent's prosecution history and the prior art known to the party. Consideration of these materials is necessary because the scope of the infringement claims cannot be interpreted properly without reference to this information. Hence, opinions that do not consider the prosecution history and the prior art and conclude simply that there is no infringement are likely to be accorded far less weight than are those that discuss these matters fully.
Opinions should be given in writing. It is very difficult to prove the content of and the basis for oral opinions, particularly when it is likely that it will be months or even years before anyone is asked to remember anything about the opinion. Conversely, a written opinion usually sets forth a list of all the things considered during the preparation of the opinion, the reasoning by which those materials were evaluated, and the specific recommendations as to the disposition of the problem. Therefore, years later the record will remain clear.
One point should be made: The written opinion need not state unequivocally that the patent in question is not infringed. It is sufficient for the opinion to be phrased in terms such as, "while it is believed that a court should find the patent not infringed, it is certainly possible that a court could disagree and find the patent infringed." All lawyers (and all judges) recognize that there are no absolute certainties in a court. Regardless of the strength of a case, it is always possible for a jury to decide against a party. Thus, opinions expressed in probabilities become more credible than those expressed as certainties.
In contrast to the factual circumstances precluding a determination of willful infringement in Westvaco, an oral legal opinion did not avoid a finding of willful infringement in Minnesota Mining and Manufacturing Co. v. Johnson & Johnson Orthopaedics, Inc., 976 F.2d 1559 (Fed. Cir. 1992). This case involved four patents owned by Minnesota Mining (3M) that related to synthetic orthopedic casting tapes used to immobilize broken or fractured bones. Johnson & Johnson, a fierce competitor of 3M, knew of the patents and manufactured competing products that were found to have copied the patented products of 3M. The trial court, having found Johnson & Johnson to have infringed, knowing of the patents' existence, also analyzed the totality of the circumstances to determine whether Johnson & Johnson had infringed.
In making its findings of willful infringement, the trial court evaluated the evidence presented against the legal standard that the company was prudently conducting itself as a reasonable person with some confidence that a court might hold the patent invalid or not infringed. Upon reviewing the evidence, the trial court determined that Johnson & Johnson did not have a reasonable basis to believe the patents were invalid and unenforceable.
In upholding the trial court's finding of willful infringement, the Federal Circuit approved the legal standard used by the trial court for avoiding increased damages for willful infringement and addressed the factors that led to its decision. First, the court noted that a potential infringer having knowledge of another's patent has a duty to avoid infringing on that patent. That duty normally requires the potential infringer to obtain competent legal advice before infringing or continuing to infringe. However, merely obtaining legal advice is only one factor. An opinion of counsel does not, in all circumstances, guarantee that willful infringement will not be found. The court emphasized that the advice must be "competent" legal advice.
The court found that the legal advice regarding invalidity and unenforceability obtained by Johnson & Johnson was from its own in-house counsel in the form of an oral opinion. Furthermore, the court found that Johnson & Johnson had no reasonable basis to rely on the opinion because it was not objective. The counsel had received advice from technical experts of businesses that provided the supplies used by Johnson & Johnson to make the alleged infringing products, and had asserted positions that were inconsistent with the positions taken in patent applications for competing products which the counsel had prepared for Johnson & Johnson. Additionally, the court found that Johnson & Johnson knew that the information provided to it in formulating the oral opinion was false or questionable in several instances, yet did not seek objective legal advice from outside counsel.
In deciding against Johnson & Johnson on the issue of willful infringement, the court found that alleged infringers who intentionally blind themselves to the facts and law, continue to infringe, and employ the judicial process with no solidly based expectation of success, can hardly be surprised when their infringement is found to be willful.
The true cost
One final point should be made. The timing of an opinion is important. The procedure adopted by a company should provide for the acquisition of the opinion as soon as reasonably possible after the initial notice of the patent is received. Again, when an opinion is acquired quickly, it tends to demonstrate that the company respects the rights of others. Also, should the patent present a real problem for the company, the earlier the company sets about solving the problem, the less expensive it will be for the company ultimately.
The implementation of this kind of procedure will be expensive. However, when that cost is compared to the "cost" in terms of increased damages and attorneys' fees attendant to being found just once to have infringed another's patent willfully, the cost to create and implement such a procedure is small. In all likelihood, such a procedure could be operated for decades for far less than the cost of even a single finding of "willful infringement."
Willful infringement is an often overlooked and inadequately understood part of patent infringement litigation. An accused infringer may have a legal and factual position that is sufficiently strong so that it is a virtual toss of the coin as to which party may win. Yet, once the jury finds for the patentee, unless the infringer has demonstrated to the jury that it took all reasonable measures to avoid a finding of infringement, the jury can easily find that infringement was done willfully. It is only prudent that companies know exactly what willful infringement is and how best to avoid being found to have done it. Hopefully this article has provided some guidance in understanding these issues so that the danger can be avoided.